India Offers $72 Billion Liquidity to Help Shrinking Economy
India Offers $40 Billion Loans to Small Business to Boost Growth
(Bloomberg) --
India spelled out the details of its massive rescue package that will initially help small businesses and utility companies as Prime Minister Narendra Modi gears to restart the economy cratered by the coronavirus pandemic.
Finance Minister Nirmala Sitharaman offered $62 billion in credit lines to small firms and the shadow banks that fund them, and another $10 billion to the electricity distributors. More steps are coming, she promised at a briefing in New Delhi Wednesday.
“Essentially this is to spur growth and to build a very self-reliant India,” Sitharaman said. “Our focus will be on factors of production which are land, labor, liquidity and law.”
The measures are part of a $265 billion rescue package -- equivalent to 10% of gross domestic product -- pledged by Modi on Tuesday. Almost half of this comprises monetary measures announced since February and the latest steps account for another roughly quarter of the total.
While shares of some shadow lenders, including Bajaj Finance Ltd., rose Thursday after the government announced measures to ease liquidity for the sector, benchmark stock indexes retreated. The S&P BSE Sensex dropped 1.9% as of 10:59 a.m. in Mumbai, while the NSE Nifty 50 Index lost 1.7%. The yield on the most-traded sovereign bond due 2029 fell 10 basis points to 6%.
Governments across the world have piled on more than $8 trillion in fiscal stimulus to help tide over the crisis that’s pushed the global economy toward its worst downturn since the Great Depression. India is on its course for its first annual contraction in four decades this year, as the economy lost millions of jobs and companies cash after strict social distancing measures put in place since March 25 crippled economic activity.
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Sitharaman said market borrowings will partly finance the stimulus. The government this month ramped up its borrowing target to 12 trillion rupees from 7.8 trillion rupees for the year that began April 1.
The measures evoked praise and doubts alike. While captains of shadow banks, real estate developers and power distribution utilities welcomed the relief offered by the government, some analysts, including Kunal Kundu at Societe Generale SA, rue a missed opportunity to deliver big bang reforms.
“Expectations were high that it could be this government’s 1991 moment, when the economic crisis of that time triggered a major reform push that ultimately set the economy on a new growth trajectory,” Kundu said. While a few more announcements are likely to follow, the “multiple liquidity measures and barely any additional fiscal spend” fell short of expectations.
The impact of these measures on the government’s budget will be only around 0.6% of gross domestic product, according to Soumya Kanti Ghosh, chief economic adviser at State Bank of India, while Rahul Bajoria of Barclays Bank Plc estimates the government may end up with a fiscal deficit of close to 6% of GDP than the budgeted 3.5%.
What Bloomberg’s Economists Say:
“Most of the stimulus measures relate to credit guarantee schemes by the government, which doesn’t increase the fiscal burden on the government in the current year. The measures announced should aid in easing liquidity constrains for businesses once the lockdown is lifted, but won’t do much in terms of boosting demand.”
-- Abhishek Gupta, India economist
The rescue package followed calls from businesses to save jobs, especially in the micro-, small- and medium-sized enterprises -- the bedrock of the $2.7 trillion economy -- that employ more than 110 million people.
“We welcome the comprehensive and highly progressive measures announced by the finance minister,” Venu Srinivasan, chairman of TVS Motor Co. said, commenting on steps to inject liquidity for non-banking finance companies and MSMEs. “The massive fiscal stimulus will help improve the impacted financial system and the positive business perception will stimulate demand,” he said.
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